Australia: Managing litigation risk - Part 1: stop disputes arising

Last Updated: 14 May 2017
Article by Scott Crabb

Sensible and practical steps can help your business prevent disputes from arising.

It is an unfortunate fact of life that business activity generates disputes that may result in litigation or regulatory action.

Litigation is justifiably recognised as costly, unpredictable and inefficient - the antithesis of profitable business activity. However, litigation risk is not simply about legal expense. It is a broader issue which involves diversion of valuable management resources, reputational risk, brand damage and potential personal liability.

Over the next few weeks, we'll set out some clear guidance on how you want manage and reduce that risk. But of course prevention is better than cure. So, what can your business do to reduce the risk of a dispute in the first place?

Undue haste

Problem: Commitments are made on behalf of businesses before proper due diligence and contract review has been completed.

How to avoid this

Train key management and staff. Problems often stem from a lack of understanding about basic legal principles or applicable policies and procedures.

Set clear limits on delegated authority - while not fool-proof from a legal perspective, limits help in a number of ways.

Ensure your management team recognises the value of due diligence and contract review. These processes are not a deadweight but an investment that delivers tangible value to your business.

Incorporate a litigation risk review within your procedures for approving transactions and projects.

Unsuitable business partners

Problem: Businesses don't focus on counterparty risk before they enter into a venture or transaction.

How to avoid this

Ensure that you undertake due diligence on prospective counterparties before entering into a venture or transaction. A failure to undertake this task is a common root cause of many disputes.

Don't focus solely on financial or technical capabilities, but on the whole approach of the counterparty to doing business. Consider whether the counterparty's displayed behaviour aligns with your core values.

Don't take on a high risk counterparty inadvertently - active management may be required. Problems can be particularly acute where the arrangements presuppose a level of goodwill, or confer discretions that can be used as an effective veto or as a means to hold you to ransom. If need be, adjust structures or contractual terms to provide additional protection.

Contract management

Problems: Poor documentation triggers a dispute or regulatory investigation, or non-compliance with contractual requirements leads to a dispute.

How to avoid this

When negotiating, pay close attention to deadlines, performance standards, deliverables, termination rights, representations and warranties, indemnities, exclusion clauses and limitations on liability. These are common areas where disputes arise.

Don't sign documents without prior review by general counsel or external legal advisers. Use your own set of transaction documents where possible and regularly review them.

Don't be naïve about the level of self-interest counterparties may display when the going gets tough. Recognise the dangers associated with contractual provisions ending up in the drafting equivalent of the too-hard basket.

Don't scrimp on contract management. Establish adequate systems and procedures and ensure they are tailored to the specific requirements of each contract. Monitor and report on contractual compliance. Take particular care when identifying triggers for termination.

Misleading and deceptive conduct

Problem: Businesses are alleged to have engaged in misleading or deceptive conduct contrary to trade practices legislation.

How to avoid this

Update your trade practices compliance program. Train key management and staff on how to avoid misleading or deceptive conduct and the risks of non-disclosure. Ignorance is extremely risky when even honest but careless statements can lead to liability.

Implement systems to ensure that your business can justify representations, warranties and statements on which others may rely.

Ensure your risk management systems require pre-vetting and approval of all advertising and marketing materials.

Include appropriate disclosures and limitations on liability in transaction documents.

New business activities

Problem: Businesses are blindsided by the risks associated with new products and ways of marketing or conducting business.

How to avoid this

Ensure your risk management systems require a legal review of all new products or services before launch. Explore potential regulatory issues arising from new ways of marketing or conducting business. There are often highly technical rules at work and traps for the unwary. Issues might include spam, privacy, IP and trade practices. Be thorough. Don't assume that there are no issues because of what other businesses are doing. Remember the importance of compliance with anti-corruption and bribery legislation when undertaking new business overseas.

Technological or regulatory change

Problem: Businesses are caught out by the speed of technological and regulatory change.

How to avoid this

Ensure your risk management systems require key risks arising from technological and regulatory change to be identified and proactively addressed.

Take advice from appropriate experts when required.

Prioritise cyber security and data breach risks which are hot topics.

Risk identification

Problem: Businesses don't focus on the risk of litigation and regulatory action despite these being significant risks to which each is exposed.

How to avoid this

Ensure that your audit and risk committee specifically identifies and addresses litigation risk. A cookie cutter approach is insufficient. It should evaluate and track exposure arising from key activities undertaken by your business along with each product and service that you offer.

Review your risk management systems to ensure that they identify and proactively address activities which create the potential for disputes, or expose your business to regulatory action, shareholder actions or class actions.

Consider adding legal expertise to your audit and risk committee if you do not already have it. Ensure that your audit and risk committee obtains input from experienced in-house counsel or external legal advisers when required.

Insurance

Problem: Businesses are forced to litigate over losses for which they could have obtained insurance cover.

How to avoid this

Conduct an audit or review of what cover your business enjoys for the risks to which it is exposed.

Ensure that your general counsel or head of risk management develops a good relationship with a competent insurance broker to ensure that the best possible tailored policies are purchased to suit the needs of your business.

Don't assume that cover is limited to public liability, product liability, PI and D&O. Keep abreast of new policies available in the Australian market, for instance, cyber risk insurance policies.

Assess whether your business would benefit from more specialised policies such as patent litigation insurance. Conduct a review of the terms of your policies as well as the risks covered.

Don't review the insurance terms only when a claim is about to be made.

You can never guarantee that you will never have a dispute, but you can minimise the risk. In the next part of this series, we'll see what you can do if you are unfortunate enough to be in a dispute, and need to prevent it from escalating out of control.

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions